POSCO Falls About 5% This Month
Reflecting Uncertainty Over China's Steel Production Cut Policy
[Asia Economy Reporter Minji Lee] As uncertainty over the Chinese government's steel production cut policy increases, the stock price volatility of domestic steel companies is also rising. Securities experts predict that even if the scale of production cuts in the second half falls short of expectations, domestic steel companies will benefit in the long term.
As of 9:35 AM on the 5th, POSCO was trading at 342,500 KRW, down 1.15% from the previous trading day. From the 19th to the 30th of last month, the stock price surged about 10% over two weeks but continued to decline this week, falling about 5%. Hyundai Steel also dropped about 3.4% during the same period.
The increased stock price volatility of leading domestic steel companies is due to China's steel production cut policy. Last month, domestic steel companies showed a sharp rise on expectations of a windfall profit after the Chinese government expressed its intention to significantly reduce steel production in the second half to lower carbon emissions. The abolition of export value-added tax (VAT) refunds on certain items (cold-rolled coated steel, hot-rolled steel sheets, etc.) also led to increased demand for companies like POSCO, Hyundai Steel, and Dongkuk Steel. However, after the recent Politburo meeting in China, opinions emerged that the scale of steel production cuts would fall short of expectations, causing the previously soaring stock prices to decline again. The price of raw material iron ore also reflected this trend; the spot price of iron ore at Qingdao Port in China fell more than 17% from 219.32 to 181.57 over the past month but slightly rebounded by about 1.2% this month.
Minjin Bang, a researcher at Eugene Investment & Securities, explained, "Some local governments are pushing carbon reduction plans excessively, raising concerns that normal economic activities could be affected. To maintain the previously announced crude steel production volume, production cuts in the second half are necessary, but the market seems to be weighing the possibility that the scale of cuts will weaken." China's announced crude steel production target for this year is 1.06 billion tons, and considering the first half production of 560 million tons, production cuts exceeding 50 million tons are required in the second half.
However, securities experts say that the uncertainty of the Chinese government's policy is not enough to undermine investor sentiment. The recent Politburo meeting results indicate that China plans to adjust production regulation intensity to avoid supply shortages rather than abandoning steel production cuts. Seongbong Park, a researcher at Hana Financial Investment, said, "As we move into the fourth quarter, the scale of steel production cuts will expand further, and China's steel supply and demand will remain tight within the year. On the contrary, expectations are rising that China may impose tariffs on steel products, which will benefit domestic companies such as POSCO and Hyundai Steel."
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